Drop in Corporate Wages, Problems in Consumer Spending Arises

Japanese wages drop in December at its quickest rate in five months. This also implies that consumers can reduce spending and makes it more difficult for the central bank to attain the two percent target inflation rate.

Low wages also shows that the government had a hard time in increasing wages by three percent or higher for 2018 during the annual discussion with labor unions.

The goal of Japanese Prime Minister Shinzo Abe referred as “Abenomics” has been successful in improving corporate investment and inviting more women to the workforce but not in raising wages by companies.

A senior market economist at Mitsubishi UFJ Morgan Stanley Securities, Shuji Tonouchi, said commented that nominal wages aren’t on par with prices, which has been a problem from the start of Abenomics program. It seems that the 3 percent target is too high to reach.

Real figure of wages dropped by 0.5 percent in December which was adjusted for inflation in comparison to the same period a year ago, according to the reports from labor ministry on Wednesday. Previously, the figure rose by 0.1 percent annually in November which has been the biggest fall since the recorded 1.1 percent in July last year.

In 2017, real wages slid down to 0.2 percent after 0.7 percent increase last year. Nominal cash earning climbed by 0.7 percent than the same period in the previous year, which was slower by 0.9 percent annual, as stated in the reports.

Meanwhile, special payments, such as bonuses, increase by 0.7 percent in December 2017 after an upward revision of 7.8 percent the month before. The data shows that a lot of companies gave year-end bonuses in November instead of the last month of the year.

Overtime pay, which is also an important indicator the strength of corporations, increased by 0.9 percent in December, which was slower than the adjusted 1.9 percent annually in November.

In the second quarter of 2017, the output gap reflects the excess supply over the demand over nine years based on the BOJ data. However, data on consumer prices and wages did not affect the inflation growth on a long-term basis.